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Oil price jumps after Iran shoots down US drone

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK

The price of oil spiked on Thursday after Iranian military forces shot down a US drone.

Iran’s Islamic Revolution Guards Corps (IRGC) said it had shot down the drone near Iranian airspace, the BBC reported. US officials have confirmed that it was a US drone, according to the same report.

Iranian news agency Fars said that the vehicle shot down was a “US-made Global Hawk spy drone” but an unnamed US official told Reuters it was “a U.S. Navy MQ-4C Triton.” IRGC said that the drone was in Iranian air space, while the US official told Reuters it was in international airspace.

Crude oil (CL=F) was trading up by 2.8% to $55.29 shortly after the incident was reported early on Thursday. Brent (BZ=F) was up by 2.3% to $63.26.

The price of oil jumped on Thursday morning after the drone downing was reported. Photo: Yahoo Finance UK

The drone downing comes amid heightened tensions between the US and Iran in the region. Last week two oil tankers were attacked in the Gulf of Oman near Iranian waters. The US accused Iran of being responsible for the attack, an accusation Iran denies. The US deployed 1,000 extra troops to the region earlier this week in response to what it called “hostile behaviour.”

Iran warned this week that it will breach uranium stockpile limits agreed under the Obama-era nuclear deal within days.

Two MQ-4C Triton drones. US officials say this is the model shot down by Iran. Photo: U.S. Navy photo courtesy of Northrop Grumman/Chad Slattery/Handout via Reuters

“This will only stoke tensions in the region and produce short-term support for oil prices,” Neil Wilson, the chief market analyst at Markets.com, said on Thursday morning in response to the drone attack. “We await to see whether this escalates further – the response from the White House will be important.”

Oil is spiking in response to rising tensions because of the Strait of Hormuz. This narrow sea passage between Iran and Oman is the only route to the open ocean from the Persian Gulf and is one of the most important shipping routes for oil in the world. Traders fear that rising tensions could disrupt oil shipments and restrict supply.

“We know that geopolitical tensions in the region are worsening and raise supply-side concerns in terms of short-term outages etc,” Wilson said, “but with OPEC already curbing output and US production at a record high, we still think the market is far less susceptible to a shock than in years gone by.”